Planning your financial needs

There is a point in most people’s lives where they start considering - how much is enough to support them when they decide to stop work? We see this a lot with people approaching their mid to late 40s, when they realise that their working days are no longer infinite.

At Redwood, achieving clarity around this question with our clients is critical to our approach. This is because the answer will often be the motivation to develop wealth planning strategies in order to achieve the desired outcome (or amount).

How much is enough?

Of course the answer to this question, will vary considerably from one person to the next. But commonly the most significant determinants are:

  • How much a person needs to sustain their lifestyle each year; and
  • How many years ahead do they need to plan for (or how long do they plan on living)?

Industry calculations assume to know the answer to the second question. So based on the assumption that you want to leave nothing behind, they will estimate how much is required.

At Redwood, our clients prefer the peace of mind that their capital will never run out, and often plan for a meaningful amount to be left for the next generation. Therefore we take a conservative view when setting expectations and consider that capital must be sustainable for 20 to 30 or more years.

Strategies for long-term sustainability

Sustaining capital for the long-term means we must also take a conservative approach to investment returns (and risk), and pay particular attention to the two evils of investing: taxation and inflation. Inflation and Tax greatly alter an investor’s return and will have a material impact on how much capital we need to sustain us.

Our approach to wealth strategy and investment must be carefully managed in order to provide sufficient return to account for these evils and still meet your needs.

  • In order to compact inflation, it is important that we invest a reasonable allocation of our capital in growth assets. These assets must be capable of growing their earrings at least in line with inflation; delivering us growing dividends and driving increased valuations.
  • In planning to manage tax we must take a long-term approach to ensuring our capital is invested in the most suitable entities (superannuation, companies, trusts etc.)

At Redwood, our unique combination of strategic tax and investment analytical expertise allows us to manage and minimise these two evils.

Return Expectations – Capital & Income

Based on the long term past returns, we assume we can draw about 4% to 6% ahead of inflation (before tax) from a balanced portfolio over the longer term.

Taking a conservative view, at Redwood we believe it is the return after inflation that we can afford to spend, leaving enough to ensure your portfolio still grows (in line with inflation).